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Cryptocurrencies exchange platforms

by | Dec 2, 2019 | 0 comments

This article is intended for readers who have already acquired a certain level of knowledge in the field of Blockchain and cryptocurrencies. If the article seems indigestible, do not hesitate to choose another difficulty in the box below wink

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What are they for ?

A cryptocurrency exchange platform  allows trading crypto currencies , buying or selling them,  exchanging them to traditional fiat currencies. Concretely, an exchange platform is an internet web site on which you can buy or sell  Bitcoin, altcoins (crypto currencies) or digital tokens . Very often, only Bitcoin and Ethereum are available through fiat currencies transactions. However, each platform decides its own  use policy . Thereby, one should make the choice among a great number of existing platforms (we are counting 175 platforms of which Coinbase and Binance for the first well known).

Positive points :

-Simplicity : Face to  decentralization that allows ‘peer to peer’ transfers in a total secured  operation, access to crypto currencies through exchanges platforms simplifies transactions and allows users to benefit from many functionalities to change or transfer digital assets

-Use and mobility :  It is possible to use opened services offered by the platforms whenever you want and wherever you are.  At the smartphone ‘era’, most of the trading platforms can offer an Android or iOS app that allows using  all services for users that make trips or move and allows to manage anywhere and anytime.

-A wide range of services : Even if users of those platforms need technical skills, most of them  are trying to enhance functionalities and friendly using. However, improvements should be realized  to facilitate platforms using and trading digital assets to a larger audience.    

Negative points:

– Recentralization : The paradox is that the platforms are re-introducing  centralization within the decentralized ‘blockchain world’.

-Security : In addition, one of the major blockchain strength  is about the transactions security that is existing thanks to the cryptography. By recentralizing transactions on the platforms, the risk is therefore increased. Because, like the with credit cards systems, the crypto platforms are sometimes the targets of cybercriminals, and the least secured are victims of hackers, and therefore cryptocurrencies owned by clients users stolen Following a big hacking,  History will especially remember hundreds  of thousands bitcoins that disappeared on the Japanese platform  MtGox.

– Regulation,  official agreements : Regulations are different, depending on the countries  Between  30% to 50% of the  platforms hold a business license, according to a Cambridge University study and quoted by the Landau report.78% of the  platforms for which the headquarters are located in North America hold an official business license. 85% of those based in Asia- and Pacific Rim do not hold any business license. In Europe, 47% hold a license and  43% in Latam. Since the launch of Bitcoin in 2009, 45% of the web sites have ceased running businesses, and it is probably the consequence of hacking for 50% of them. For the smallest platforms, it is more probably due to too low volumes.  

How to choose them ?

Even if most of the trading market places share the same characteristics, each of them get specificities. You can find here below few key points to make your own choice. 

Fees

For a large majority of platforms, transactions costs are degressive in proportion to volumes (0,30 % for a small order , 0,10% or down to  0.01% for a very large order). Inquire and look for information about custody costs and fees on withdrawals in euros. Purchases with credit cards are clearly going faster but are  the most expensive too.

 

Privacy and regulation

By nature, Bitcoin is an anonymous digital currency and users are frequently willing not to share their private  datas on Internet (privacy). But due to reinforced regulations for the fight against the financing of illegal activities,  platforms shall ask users for personal informations , in order to be authorized to trade (processes  KYC or ‘Know Your Customer’ and AML or ‘Anti Money Laundering’) An ID copy  (with a photo) is often necessary. Different layers of  control are possible and some platforms are more flexible ( some of them even allow to trade anonymously still).

 Security

Cold storage : It is a use that consists to store cryptos  ‘off line’ , that is to say an off-line physical device (ext hard drive ,USB key).It is a  favored solution by many platforms that aim to defend oneself against hackers. To minimize risks, managers of the platforms   deploy crypto currencies cold storage solutions(traditional hard drive disk). Otherwise, work is in progress to find out or enhance others and more sophisticated security solutions.

‘On line’ storage or  ‘hot storage’

– SSL certification (Secure Socket Layer) is a good quality security solution. It is about a securisation   protocol between computers on the network.

– Two factors authentification  (2FA) preserves  clients to an unauthorized  access. This method needs two sub-methods for validating and authorizing access to an ‘on line’ account.

Usually, 2FA process is the following :

1/  a user  known information  ( password)

2/ A user owned   element (often as a digital code generated on the mobile device)

Otherwise, the biggest platforms are refunding clients that are ‘on-line’ attacked and victims of hacking. Such  cases happened recently

 

Transactions volume

The volume is something that can be used to assess confidence and success  of a platform. Volume is correlated to the number of available crypto currencies for the trading A large volume is favorable for trading in good conditions.

 

Proposed  pair trades

BTC/USD  is the most traded pair  but some trading platforms  also offer other trading possibilities from Bitcoin to Fiat. As altcoins are becoming more and more popular, many platforms offer the possibility  to trade minor ‘alternative coins’. However, even in this case, most of the time, the trades of the altcoins are priced in bitcoins, so users cannot deal purchases or disposals directly priced in US dollar for example (or in any other fiat) .

Trading with leverage

It is also possible to trade futures or options, but it is always by paying additional cost. Margin trading means borrowing  money to increase exposure (leverage effect). This leverage allows high profit after closing the trade, but also means a higher risk for the user. The possible leverage can be increased up to 100x and even more ! This is unreasonable.   

 

Some concrete elements  

To conclude, it worth to mention comparative elements that  follow a recent analysis combined to a ranking of the best platforms, a study produced by Cryptocompare  (a UK crypto datas provider).

The study has been realized on the basis of traditional assessment parameters (total  trading volumes, fees, …) and also includes some other criterias as ‘security level’, past  hacking events (if any), clients privacy data informations leaks, etc…

Please find below the Top5 platforms ranking as you can find within the mentioned web site :

(https://www.cryptocompare.com/external/research/exchange-ranking/)

  1.     GEMINI
  2.     ITBIT    
  3.     COINBASE
  4.     KRAKEN
  5.     BITSTAMP

Whatever the quality of that type of ranking is (for which we do not comment and just report the output), depending on their needs, users should make their own opinion by themselves .

About the editor…

A passion : Economics, behavioural finance and emerging digital assets

Yves started his career in the asset management in 1986 where he worked at different positions as manager of equity funds and diversified funds. at Crédit Commercial de France and later, at Barclays group in Paris. In 1998, he took the lead of equity funds and diversified funds, then of the whole fund management business at the French team of the Dutch Robeco group  before joining Natixis Asset Management in 2012 as Director of the Equity Investment business unit. Yves left Natixis AM in 2018 to start as an independant player for professional investors and corporates (advisor and fund raiser).

He likes to engages in sports that test his endurance like running and swimming, Yves is also fascinated by social sciences, and more specifically by history and economics. But this is the economics mechanisms behavioural aspect and the markets behavioural analysis that are a constant source of thought and discussion. Since few years, the blockchain issue and emergence of crypto assets is a new field of passion and opportunities for him.

Yves Maillot

Financial markets and asset management

Yves Maillot

Financial markets and asset management

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